As South Korea’s leading messenger operator Kakao Corp. is reviewing the possibility of an acquisition for Nexon Co., the country’s biggest gaming company, the competitive composition has become more complex. Chinese gaming firm Tencent Holdings Ltd. and foreign mega private funds, such as KKR & Co Inc., Carlyle Group, TPG Capital Corp. and Silver Lake Group, may enter a bidding battle for Nexon.
Kim Jung-ju, CEO of NXC Corp., the holding company that controls Nexon, seems to be offering to sell off NXC shares owned by him and his affiliated persons. Kim currently owns a 67.49 percent stake in the holding company, his wife Yoo Jung-hyun, who is an auditor at NXC, 29.43 percent, and Kim’s private company Wise Kids Co.1.72 percent.
Deutsche Securities Inc., supervisor of the sale of Nexon, set a date for preliminary bids on Feb. 21. Currently, Tencent will be in the most advantageous position under the individual combat system because it has a full tank of cash. When Tencent mobilizes only part of its cash among floating assets, it can purchase the NXC’s whole stake in Nexon. The value of Nexon shares owned by the largest shareholder NXC is estimated at 6 trillion won to 7 trillion won (US$5.36 billion to 6.26 billion).
Kakao lacks of capital compared to Tencent with capital flexibility. The cash and cashable assets of Kakao came to 1.50 trillion won (US$1.34 billion) as of the end of September last year. Therefore, Kakao will be able to acquire Nexon only when it joins hands with another firm or investor.
If Kakao joins hands with Tencent, it can create a stable business environment. Kakao can avoid management conflicts related to the acquisition of Nexon with its second largest shareholder and it is easier for the company to target the gaming market in emerging countries, including China, with Tencent’s networks. In this case, however, Tencent will have greater influence, though Kakao protected the management right of Nexon. Tencent is already the third largest shareholder of Netmarble Corp., a South Korean game publishing company, so it cannot rule out the possibility of the company joining hands with Netmarble to enter a bidding battle for Nexon. However, Nexon might think that it is better to join hands with Kakao rather than Netmarble in order to create more synergy considering the portfolios of mutual business structures.